Thursday, January 16, 2003

WASHINGTON, Jan. 16 (UPI) — Microsoft Corporation, with its second quarter earnings, announced its intention to pay a quarterly dividend of 4 cents per current share, a total of 16 cents per annum. The first dividend will be payable March 7 to stockholders of record February 21.

In addition, Microsoft common stock is to be split 2 for 1 effective January 27. Microsoft was quoted at $53.66 in after hours trading, down $1.69 (3.0 percent) from Thursday’s close.

This move is particularly significant in view of President Bush’s proposal last week to exempt stock dividends from individual income tax. The proposal had however been accompanied by a puzzling proposal to allow tax free “deemed dividends” on corporate retained earnings to be credited against investors’ capital gains tax liability.

In an accompanying statement, John Connors, Microsoft Chief Financial Officer said ” Declaring a dividend demonstrates the board’s confidence in the company’s long-term growth opportunities and financial strength. We are especially pleased to be able to return profits to our shareholders, while maintaining our significant research and development efforts and satisfying our long-term capital requirements.”

This action belies the claim by many analysts that tech sector companies should not pay dividends because they are better able to reinvest cash flow rather than distributing it to investors, and that paying a dividend would be seen by such investors as a sign of weakness.

Nevertheless, with a dividend of 4 cents per quarter per share, Microsoft will pay out to shareholders less than 9 percent of its earnings for the fiscal second quarter to December 31, 2002, a proportion that is in line with traditional tech sector practice even before the distortions of the 1990’s stock market boom. In its balance sheet for December 31, 2002, Microsoft reported cash and short term investments of $43.4 billion.

For its fiscal second quarter ended December 31, the company announced operating revenue of $8.54 billion, a 10 percent increase over revenue of $7.74 billion for the same period in the prior year. Net income for the period was $2.55 billion, including a $210 million after tax charge reflecting pending antitrust and unfair competition class action lawsuits, a $282 million after tax charge for investment impairments and a $126 million one time tax benefit from a favorable tax court ruling, compared to $2.28 billion in the prior year. Diluted earnings per share for the fiscal second quarter were $0.47, compared to $0.41 in the previous year.

“The company delivered solid results in every business despite a challenging global economic environment” reported Connors.

For the current quarter ended March 31 management offered guidance that revenue is expected to be between $7.7 billion and $7.8 billion, and diluted earnings per share $0.47 or $0.48. For the full year to June 30, 2003, management expects revenue to be in the range of $31.9 billion to $32.1 billion, and earnings per share in the range $1.90 to $1.93.

After the 2 for 1 common stock split, Microsoft’s first stock split since March 1999 and its ninth since going public in 1986, the company will have approximately 10.7 billion common shares outstanding.

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